How Important Is China to World Growth?

This is a tough question to answer. But I can provide an answer of a mechanical sort. Consider how big the Chinese economy is, compared against the US, the Euro area and Japan.

Figure 1: Nominal GDP in millions of current International (PPP adjusted) dollars. Shaded area for 2009-11 indicate forecasts. Source: IMF, World Economic Outlook database, April 2009 version.

China looms large in Figure 1, rivaling the size of the Euro area. But I’ve plotted output in PPP terms. When considering the impact on economic activity and purchasing power (as opposed to well-being and real units consumed), current dollar valuations are more appropriate. Nominal GDP measured in these units are plotted in Figure 2.

Figure 2: Nominal GDP in millions of current US dollars. Shaded area for 2009-11 indicate forecasts. Source: IMF, World Economic Outlook database, April 2009 version.

Why is this distinction important? It’s because we tend to focus on China because of its size and dynamism. And while this focus is not misplaced, I do think we tend to forget that when thinking about the engines of world growth, we need to keep in mind that China, while growing faster than G-7 economies, is still only about the same size as Japan.

So, while it’s good news that China seems to be rebounding in terms of growth, due in part to the implementation of a substantial stimulus package, one has to keep in mind how big the Chinese economy is (in USD, 8.8% of world GDP, compared to 12.4% in International dollars).

How Important Is China to World Growth?

• Become A Funded Futures Trader